Google shares dip after results miss estimates

Apr. 16, 2014
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In This March 23, 2010, file photo, the Google logo is seen at the Google headquarters in Brussels. Google has bought Titan Aerospace, a maker of solar-powered drones, the company announced Monday, April 14, 2014. / Virginia Mayo, AP

by Mike Snider, USA TODAY

by Mike Snider, USA TODAY

Google is involved in plenty of high-tech ventures, from Google Glass to its broadband-on-steroids fiber network.

But its core business - online advertising - can drive revenue up 19%, as it did in the first quarter of 2014, and still disappoint Wall Street.

The world's largest Internet search provider reported first-quarter revenue Wednesday of $15.4 billion, up from $12.95 billion in the first quarter of 2013. Profit came in at $6.27 per share, compared with $6.00 a share in the same period last year. Google was expected to make a profit of $6.40.

Many companies would be satisfied with such a revenue increase, but for Google "it's an average quarter from a great company," says Colin Gillis, an analyst at BGC Partners, which has a "hold" on the stock.

The first-quarter results make sense, he says, because the company's ad revenue is typically seasonal, he says. "It doesn't do as well in the first half of the year as the second half year, just because people are looking for holiday stuff and back-to-school shopping" and might click on ads as they use Google's search engine, he says.

Paid clicks, a measure of the number of times ads from Google websites and other sites were clicked on during the period, rose 26%. However, the cost per click, or CPC, which measures the revenue generated when ads are clicked on, fell about 9%.

Neither results were as good as expected, Gillis says. "Paid clicks were a little less than people were looking for, and the losses (in CPCs) were a little greater," he says. "If you have people paying less for your product, your clicks, as has happened now for about 10 quarters in a row, that's not a healthy trend."

Like other companies, Google is facing challenges in converting mobile advertising into revenue, he says. "A lot of businesses got disrupted by people using smartphones instead of desktops, and Google is one of them."

Google's investments in other ventures - including cloud computing, wearables and expansion of Google Fiber - also point to potential down the road, says Colin Sebastian, an analyst with R.W. Baird & Co. "Google invests early and innovates early," says Sebastian, whose firm has an "outperform" ranking on the stock.

On Tuesday, the company did a one-day sale of its Google Glass Explorer edition, and the $1,500 wearable computing glasses sold "really fast," the company said. That same day, the company purchased drone maker Titan Aerospace.

Sebastian calls the first-quarter performance "a very slight miss. Google does not provide guidance, so there is typically quite a bit of volatility on their earnings reports."

Eventually mobile will become more profitable and more important in ad revenue, said Google senior vice president and chief business officer Nikesh Arora on a conference call with analysts after the market close.

Mobile ads will become more valuable because they can be location-based and contextual, something that will make it more likely a shopper will make a purchase based on an ad. "A whole bunch of building blocks have to come into play ... for that gap to close," he said. "That journey is just beginning on the mobile side."